Estonian Police Target Bitcoin Trading Site BTC.ee

As the Estonian authorities continue to tighten their grip on the digital currency trade, local bitcoin trading site BTC.ee (not to be confused with BTC-e) has announced via its website that it has “temporarily stopped trading due to threats issued by the Estonian police”.

The move follows a warning about bitcoin and other virtual currencies issued by a member of Estonia's central bank earlier this year, in which he called bitcoin a “problematic scheme” and said that “virtual currency schemes are an innovation that [deserve] some caution”.

Otto de Voogd, the site’s owner, told local broadcaster ERR he had received emails in which the Estonian Financial Intelligence Unit of the Estonian Police and Border Guard Board said that, under the country’s Money Laundering and Terrorist Financing Prevention Act, he is obliged to provide personal information on the platform’s users and written proof that the site was operated in compliance with Estonia’s regulation.

Money laundering and terrorist finance

The act (translated into English) regulates the activities of Estonia-based credit institutions, financial institutions, the Financial Intelligence Unit and other agencies and persons with the aim of preventing money laundering and financing of terrorist activities.

It applies to the economic or professional activities of a wide range of persons, including credit and financial institutions, organizers of games of chance, intermediaries in transactions with real property, traders in transactions involving more than €15,000 or its equivalent, pawnbrokers, precious metals and stones traders, auditors, providers of trust and company services, and non-profit associations and foundations.

The BTC.ee website shows de Voogd's new message.

Among other provisions, the act stipulates that, upon provision of currency exchange services, a provider of currency exchange services shall identify and verify all persons participating in the transaction if the amounts exchanged in cash either in a single transaction or related transactions exceed €6,400 or its amount in another currency.

In addition to this, the act includes an obligation to apply a range of due diligence measures if a situation involves a risk of money laundering or financing terrorist activities.

Should he fail to provide the requested information, including copies of clients’ IDs, to the authorities, he could be sentenced to three years of prison and imposed a fine of up to €32,000 ($44,000), de Voogd said.

Aivar Paul, the spokesperson for the Estonian Police, dismissed claims made by de Voogd that the emails were "threats", he told ERR:

"We have simply noted in conversation with Mr de Voogd that without the registration required by the Money Laundering and Terrorism Prevention Act, offering financial service could be grounds for criminal proceedings for illegal economic activity."

Lack of regulation

The available data suggests that to date, bitcoin has not gained prominence in Estonian retail. According to statistics released by Coinmap.org, there are currently only two outlets which accept payment in bitcoins in Estonia; a holiday location in Tallinn, the country’s capital; and car repair shop Kagu Auto in Võru, in Estonia’s south.

In comparison, the two neighbouring Baltic states, Lithuania and Latvia, host three and nine outlets which accept payment in the digital currency, respectively.

With 9,669 downloads of the bitcoin client and wallet to date, Estonia is ranked 56th worldwide. Lithuania is 45th, with 15,527 downloads, while Latvia lags behind its two neighbors at 59, with 7,918 downloads.

On his website, de Voogd said he offered transactions of between €50 ($69) and €500 ($690) worth of bitcoins:

"[I aim to serve] people with a legitimate interest in using bitcoins, such as converting into euros a few bitcoins they've received or paying for an online service with bitcoins."

According to the latest updated bitcoin exchange rates from 19th February, BTC.ee was selling at €474.40 ($652.3) and buying at €432.50 ($594.6) per bitcoin. According to data from 19th February, the website was not included on the list of bitcoin markets maintained by bitcoincharts.com.

De Voogd claims that BTC.ee did not allow third-parties to participate in the virtual currency trade, limiting the scope of the site to his personal dealings with the users. He also pointed to the lack of regulation on the use of bitcoins in financial transactions carried out in Estonia.

"Promoting bitcoins is just a hobby for us, we do not wish to make a big operation out of this," the Estonian site says.